SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 15916 / September 30, 1998
SECURITIES AND EXCHANGE COMMISSION v. BING SUNG (United States
District Court for the District of Massachusetts, C.A. No. 98-cv-
11985 (WGY))
The Commission announced today that it filed an action in
Massachusetts District Court against Bing Sung, the former chief
investment officer of RhumbLine Advisers, a Boston, Massachusetts
investment adviser, charging that Sung engaged in unauthorized
trading in two of RhumbLine's clients' accounts, the AT&T Corp.
pension fund and the Massachusetts Pension Reserves Investment
Trust. The Commission's Complaint alleges that, as the losses
mounted, Sung repeatedly misled AT&T about the performance of the
account in an effort to conceal losses. In 1996, the AT&T
account sustained losses of $150 million, and the PRIT account
sustained losses of $12 million, caused, in large part, by Sung's
unauthorized trading.
AT&T and PRIT both were clients who participated in an
options trading program developed and managed by Sung. Both
clients had written risk-limiting guidelines which prohibited
Sung from writing unhedged options (AT&T and PRIT) and in-the-
money options (AT&T), and which employed various mechanisms to
limit the number of options contracts he could write. Beginning
in early 1995, stock market increases caused the options trading
program to sustain losses. According to the Complaint, to make
up losses, Sung began to deviate from the clients' written
guidelines by writing unhedged and in-the-money options, and by
writing drastically more options than permitted. The Complaint
alleges that starting in November 1995, Sung, using false
information surreptitiously obtained from AT&T, applied for and
obtained exemptions from the Chicago Board Options Exchange and
the Philadelphia Stock Exchange which allowed him to trade well
in excess of the limits in the guidelines.
Between July and September of 1996, according to the
Complaint, Sung increased the magnitude and riskiness of his
trading. The Complaint alleges that, in the AT&T account, he
wrote unhedged and in-the-money options, as well as options
against hundreds of millions of dollars of volatile stock
indices, in violation of account guidelines. In the PRIT
account, he wrote more options than permitted. Further, the
Complaint alleges that, during the third quarter of 1996, Sung
repeatedly misrepresented, concealed and failed to disclose these
losses to AT&T. On several occasions, he provided false
performance reports to representatives of AT&T, which understated
losses by millions of dollars.
The Commission's Complaint alleges that Sung violated
Section 17(a) of the Securities Act of 1933 and Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 thereunder,
and that he aided and abetted violations of Sections 206(1) and
206(2) of the Investment Advisers Act of 1940.
In a related matter, the Commission also announced that it
instituted and simultaneously settled an administrative
proceeding against RhumbLine and its chief executive officer,
John D. Nelson, for failing to supervise Sung. The Commission's
Order found that Nelson and RhumbLine failed to detect and deter
Sung's unauthorized trading, despite red flags which should have
alerted them. Further, RhumbLine had no controls or procedures
for reviewing Sung's trading or his performance reports.
RhumbLine has agreed to a censure, certain undertakings and a
penalty of $50,000. Nelson has agreed to a suspension and a
penalty of $10,000.